learned we took away or maybe the largest one was a test facility in an environment similar to what you're going to

be deploying in and that would be the new mexico at the bed that we established. another one was early user involvement. we talked about p-28 being a prototype system. it was developed predominantly by engineers. we got very valuable, useful feedback when they looked at that p-28 prototype. we are able to incorporate that into the actual block 1 system design. we also learned lessons going back to mr. thompson's diagram, learned lessons of latencies. they used a communication system and they introduced latencies into the system. we knew we had to take them out and we went to a microwave type of site in the block 1 design. we learned as we talked earlier about the wind moving the radar around and introducing clutter

into the system and we had to introduce clutter algoriims. and p-28, which was a very valuable engineering tool for the chief and the border patrol, for us to take those lessons learned and introduce them into the block 1 design which is what we'll take out in the field both tucson and now. [inaudible] >> sorry about that. is the department satisfied with the contracting vehicle for sbi net. does it provide sufficient protection for taxpayers if the doesn't work? does it prevent large cost overruns and there are disincentives or penalties for contractor-missed declines or program errors that cause delays? >> in general, i would say that the contract we have is awkward.

it is not the contract in hindsight that probably we should have. it does have the capability to do incentives and disincentives. ultimately the responsibility, though, for holding the cost is basically the government program management. the contract is a standard contract. it's a standard type of acquisition. it give us the tools that we do need. it includes elements like award fee and incentive fee which adjusts profit based on the performance of the contractor. and as we put additional tasks on, we are in the position where we put disincentives. for example, on the northern border there are schedule incentives and if schedules that are missed there are penalties for missing them. there are other kinds of tools that we have outside the contract but i would say the contract as it's structured is awkward and as we get to the point where we have this kind of this production system that we can start stamping out, we're going to need to look at how do we get from under the structure of the contract. >> thank you. mr. stana, in your testimony you

noted the impact of placing towers and access roads in environmentally sensitive locations have called sbi net deployment delays. has gao quantified the impact these environmental concerns have had on technology deployments relative to the other factors that may be slowing this project down? >> well, there were three factors that really tugged at the pace at which the sbi block 1 was being fielded. the environmental concern was one. there was some confusion whether the provisions of the secure fence act applied to the sbi program. it turns out it didn't so they had to go through some environmental procedures to place the towers and roads. the other two were the fencing, you know, getting money, reallocated to complete the fencing as much as they could by the end of '08. the sbi program just wasn't ready for full fielding. they had to replan and retest. even if the environmental concerns weren't there, it's not

to say that, you know, they would have met the 2008 date that they originally put out there because there were retest and replan issues out there. we couldn't tell exactly how much each one of those factors tugged, but the fact is that the delays persist and it's not only due to environmental issues. there were other testing issues and the appropriateness in and the readiness of technology to be fielded issues that were still there. >> thank you very much. thanks, madam chair. >> the chair recognizes mr. thompson for a comment. >> mr. borkowski, you say the contract was implemented. who developed the contract? >> ultimately, we're responsible for that contract, so we developed it and we are responsible for its nature. >> so i would assume that because we now know it was an awkward contract, we won't enter into any more awkward contracts?

>> i can't -- i can't promise that. i hope that we learn our lessons from these kinds of experiences. i have the contract i have and i have to make the most of it until i'm in a position, a reasonable time position to fix it. >> maybe i need to ask the chief. >> the chief i don't think has anything to the with the contract. weren't you allowed to not even suggest deployment? >> at the beginning we were not involved in the contract. and it would be a cbp responsibility overall as to how the contract is actually designed, sir. and i would agree with mr. borkowski, that at the most opportune time we will look for a realignment, if you will, where it can be done because i agree with mr. borkowski, it is an awkward way of doing business. >> so let them ask you something because i'm told that it's a possibility you may be doing add-on or extending in the very near future. does that mean the extension or

the add-ons will be added also. >> the extension of the contract is done and the contract has task orders which are essentially subcontracts and that's what makes it awkward because the elements of each of these task orders are really connected but they look like they are independent contracts and that's the awkward part. the way we're managing that now is we have imposed requirements on the contractor to connect those. so we can work around it. and certainly, though, in the future to the degree that i'm in control of the design of the contract we would not do this in the future but it is what we have. >> i believe i'll recognize you and you had a comment. >> i think it's important that mr. peters comment it was tad awkward and boeing does not have the position of entering into contracts that cost you more than two times than what when you get. >> it is an awkward relationship. you have multiple task orders and they are linked together but

contractually they are treated separate. that's what makes it awkward and slow and inefficient for the contractor and customer relationship. >> and it's fairly safe to say if this project ended now, it would have been an experience you would have rather not been in, the assumption here is that if boeing can continue it, maybe you can recroup back to even but one thing that needs to be pointed out here, there was not an enrichment of a private sector in this contract. this was just basically way overpromised and everybody has lost their shirt so to speak so far. >> well, but i think the record needs to reflect that this was a competitive process. it was not a sole source. so boeing knew they had risk going in, and that risk -- >> supposed to be bourne by the private sector. >> absolutely. >> thank you. >> okay.

i'll recognize you also from border state from arizona for five minutes. >> thank you, madam chairman. it is an honor to yield to the esteemed colleague from texas, mr. cuellar so i don't need waiting. thank you, panel for being here. the security of our panel is maintaining operational control of our borders. there's no question about it. and if the sbi net is able to meet our ambitions it will be a valuable tool in achieving this control. however, time after time officials from dhs and boeing have come in and told congress that the program is back on track. that past problems have been resolved and everyone is ready to move forward. and time after time we later find out the old problems have not been fixed and there continue to be delays. today we're hearing again the same story. after months of being told sbi net is back on track and ready

for deployment, the gao is reporting that the technology has many of the same flaws it has had for years. this program is too important to keep messing up and needs together back on track. mr. stana, how much closer are we now than we were two years ago to having an operational system that works the way we've envisioned without the operational shortfalls that have been evident in the past? >> that's a good question. and i don't have a complete answer for you. what i do know is that the testing regimes that have been designed for block 1 are more rigorous than project 28 and there were some lessons learned from project 28 that have been incorporated in the zune of the block 1. on the other hand, we're seeing the same issues we've seen in the camera projects dating back to the 1990s. so i guess we'll find out when tz to operational testing.

i share your concern about the optimism. i think mr. peters is the third boeing president that i recall at the witness table. each time it's been an optimistic assessment and i can understand coming from the contractor why that would be. but i think we have to wait and see exactly what's delivered and it is operationally efficient and effective for the user, the border patrol. >> the send part of my question, why are we not testing until january of next year? why don't we start testing now? the operational testing. maybe, mr. peters, you can answer that. >> we actually we are testing. there are phases of test. there's the test the contractor has to sell this off to me as the engineer geek and that's going to start here shortly and some has started in tucson. at that point i'm going to comment on if boeing is going to give me what i think they node to give me and now i'm going to

turn it over to the chief of the bordering control and that's the test we're talking about starting in january. >> can that be accelerated? >> the schedule we've again you is the schedule we think is reasonable. again, there are risks as mr. stana said. i want to tell you we've done the best we can. we're still -- we're already working with boeing on that but we're not confident that we'll succeed. >> well, i appreciate your desire to overpromise. i yield back. >> thank you, miss kirkpatrick. i'll now recognize mr. rogers for five minutes. >> thank you, madam chairman. i thank the witnesses for being here. you know, a little over four years when i was here in the subcommittee we did an investigation into isis and thought that could never happen again and it seems like this is

eerily similar to the outcome that we saw from that debacle but with a lot bigger numbers. i'd ask mr. borkowski and mr. stana, could you tell me why you think we've let it happen again. >> i can't tell you why we think -- >> but with much bigger numbers? >> right. the only thing i can tell you, sir, i think we've had to build our own competence in managing a program like this and then learning what you have to put in place. and some of the things that we put in place at the start of this program in hindsight were not effective. and so now we're in a position where we can either stop and start over or we can fix as much as we think we need to fix to make the risk going forward prudent and that's exactly what we are doing. and there are risks in that approach. so we're trying to fix what should have probably been fixed before this program but we're doing it in the process of

delivering it and i can't -- i can't explain how we got here. >> and i just don't understand from a technical standpoint why it's so difficult. there's basically cameras on the pole. and we've got folks monitoring on multiple cameras in a dispatcher format. i've been out there and i've seen them and i just don't understand why we're having problems. this is not the most sophisticated technology that our country has. as you've just heard the chairwoman, what we're doing in iraq is much more sophisticated. >> in some ways it is and some ways it isn't. and one of the key ways -- well, first of all there are two things going on here and i'll use a little bit of an analogy because. what we bet on and it was probably not a good bet but what we bet on was this was like buying a new printer for your computer and you're supposed to be able to plug it in and go home and it work. when i do that half the time the printer doesn't work and it supposed to and i have to get the cd rom and cram it into

place and it will work. this is a network system. that's very important. this is a network system. all of these towers are connected and what that means is you've got -- in the case of tucson 1, 9 radars, 9 infared cameras, 9 electrical cameras all coming together into one pipeline, one communication pipeline so there's a process you have to go to manipulate the data from those things. >> and i understand that, but my point is, that is basic technology. we do it here. we have all sorts of information systems here that if we move around, just in this one building, just in this one hearing in the televising of it. this is not rocket science. and i don't understand why we can't do that networking along that border in a more effective way. >> we can and if we had -- if we had started with the assumption of let's look at the requirement, let's look at what bandwidth so forth and systems

we would probably be okay. we didn't. we started with the assumption we will plug these things together it will fit. and once we did that, we were in trouble because when it didn't fit, we hadn't started from that natural beginning and now we had to make it fit and so we started the wrong way in my opinion. >> that's true. mr. stana, you used the figure $6.7 billion alt while ago. what was that figure about. >> that's the total estimated cost of sbi from fiscal years 2007 to 2014. that is not a life cycle. >> that's what i was going to get at. nobody knows what it's going to cost. >> nobody knows what it's going to look like. >> and i'm amazed we spent over $3 billion already and we don't have a system that works. it's just phenomenal to me. but last i want to go to chief and ask about something that i'm interested in. blimps, you know, we use blifrpz -- blimps for weather purposes and they can stay up for an

extended period of time. do you use blimps for aerial surveillance and if so, how many and what kind of platforms do you use them for? >> we do not currently use blimps. we have tested them in the past out in the field. and arizona specifically. we do fly some radar aerostats along the southwest border but they're not surveillance blimps one of the things we're asking for is specifically to capability. if he believes that a blimp is a proper platform, he will take a look at that. but our -- and this is a good thing about the way that the relationship works between the border patrol, the sbi net program and whoever the contractor is going to be. we articulate requirements. this is what the border patrol needs from an operational perspective and they start doing the research and assessing what it is they can bring us that capability in the most effective, efficient and, of

course, reasonable manner from a funding perspective. >> well, i know you all like the drone but it's so expensive and, you know, the blimps are being used by the military and weather services i would like you to look at that. one of my concerns all along about the video cameras on poles is they could be shot out. that's just a fact by the bad guys and you don't get the real high surveillance that allows to you look over into mexico. but i'll try to get a meeting with you, mr. borkowski, and talk more with you about that later. thank you, ms. chairman. >> i'll now recognize miss jackson-lee for 5 minutes. >> let them thank the chairwoman and chairman for the hearing. >> a background of a number of my questions will be simply the conditions that the border that

i go a well-known and have accelerated over the the last year, the gun-running, the explosive violence on the mexican side of the border spilling over to the u.s. border and the interest of the american people about whether or not this violence can be contained and what elements we're using. certainly, sbi net deals specifically with the issues of securing the borders in ways that might capture the less endowed criminal because there's way to promulgate the violence that is going on. mr. stana, if you would give me the major achilles heel of this program, the major indictment of this program, if you would do that. and chief aguilar, would you give me the status of the lawsuits and the negotiations dealing with the fence.

this is part fence, part virtual that is at the texas border. and i'd also like to understand why there was an extension of the being contract and what is expected to be accomplished out of that extension. mr. stana? >> thank you. with a broad stroke i would say getting something that works to spec has been the most difficult part of this program. project 28 was accepted. it didn't meet all the specifications but it's within the right of the secretary to accept it and he did back in march, 2008. it has been helpful but it has not worked to spec and now we're seeing the same thing. i would note that the spec for acceptance of block 1 is now a 70% identification rate. so that means you're talking about drug runners or bad criminals, it can be accepted if they can find 7 out of 10 of them. and i hope that would -- >> 3 can really be explosive.

>> i hope that that metric would come up because, you know, figuring at 3 out of 10 are going to get by and you can still accept the program, as i understand that metric, seems to be a lower bar than maybe we want. >> what about the training of the border patrol agents? their understanding, comprehension and comfort level with it? >> they have been trained on project 28 and there were the mobile units and there was delay getting them delayed. i think the border patrol is doing what it can to train but until this thing gets de -- >> but as mr. thompson asked the question about the agents who said they were uncomfortable or couldn't get their hands around it. >> as we understand the border patrol agents, we're thoroughly familiar with msss and project 28 and the folks that our folks talk with sort of dismiss that counter-argument. >> mr. aguilar, chief aguilar, if you want to comment and then add on the lawsuits, please. >> yes, ma'am. >> and you might be able to --

someone jump in on the contract being extended. >> right, i'll ask mr. borkowski to speak to the project extension, ma'am, and i'll also ask him to fill in some of the gaps with the relative the land condemnation, the lawsuits that are going on currently. as we speak we have built about 92 miles of fence just in texas and i mention texas because that's where most of the lawsuits are happening at. we intend to build 115 miles in total. so we have about 23 miles that are caught up in some kind of litigation or concerns having to do with ibwc and things of this nature. we are working through those lawsuits and condemnations and we fully expect to either build the fence by the end of this year or articulate a means by which to get the persistent impedance that we're looking to get in areas where we cannot build a fence because of the ongoing lawsuit. >> i'd like to pursue this with you but if i could get the answer on the boeing question

and what results are we looking for at the end of this year? >> well, the being contract -- obviously, boeing is in the process of building these things and testing them so we needed to extend the contract to allow them to do that. and, in fact, part of what's awkward of this contract is those independent task orders that have periods that are not the same as the master contract so we extended the contract to allow boeing to continue the work that was contracted on the task orders. because it's a task order contract, extension just provides us the flexibility to continue -- having boeing continuing the work that's already contracted and if appropriate, do follow-on work. so that's the reason we've extended the contract. >> in my last seconds i just think we need to have a steadfast monitoring of the progress here. this is an ongoing saga of ten years plus, and our borders are screaming for the right kind of security and america is screaming for the right kind of security. i'll look forward to some

in-office briefings and i thank you very much and i yield back. >> thank you, miss jackson-lee. and now i will recognize miss miller from michigan for five minutes. >> thank you very much, madam chairman. i certainly want to thank you for calling this hearing. and i want to thank the witnesses as well for their testimony and to chief and the director. i certainly appreciate your service to our country, all of you, in which you're doing, which is not an easy job. and i'm very interested in sbi net and i actually want to talk about a little bit about what my experience in my region, in our sector, has been on the northern border. and as always seems to happen, we always talk about the southern border and believe me, i am not minimizing. i'm very cognizant of all the problems we have on the southern border by the northern border of our nation is twice as large as long and has some similar challenges as well as some unique dynamics as well. and a principal advocacy of mine, of course, is the northern border.

it was mentioned a little bit about some of the -- what's happening in the detroit sector and the buffalo sector with sbi net but let me just say that it's happening very quickly and generally quite positively in regards to sbi net and i want to personally thank, if it's not inappropriate chief galleous. we don't want to lose him. we really like him and he's doing a great job and i'll tell you, as we have rolled out sbi net in the northern sector, it's principally in my district. in michigan you have the map of your state on the end of your hand and we have having 11 surveillance cameras put up on the monopoles along this sector as well as we have a mobile unit at the national guard base, which is in the immediate

geographic area and houses all the different facets of the military but cbp has a large presence there and the sbi net is cooperating under the cbp umbrella a great lakes northern border wing for cbp. additional personnel is there. for a number of the reasons, not only do we have a asymmetrical link, we have two busiest borders on the northern tier, the busiest rail line -- the entire country is there and all of this is happening and so we have a lot of the same kinds of things that are happening on the southern border. we're anticipating that we have the ground mission for uav next year, 2010. they are under the dhs cbp. and the interesting thing for me

that has -- and i just want to speak to this as a positive experience is the rollout of all of these surveillance cameras. you can imagine how we were all very concerned about how the public would say, my gosh, big brother. all of a sudden you're putting these huge surveillance cameras in one of the busiest boating sectors, for example, in the entire world, really. people are saying i'm out there having a beer. are you -- or women whatever, there were -- there was a lot of public consternation about the rollout of this and i will tell you our detroit sector chief and cbp, how they rolled it out, they brought in all the affected stakeholders, our local law enforcement officers, the county, sheriffs, obviously the coast guard which is within of your critical partners, our canadian counterparts, everybody, and most importantly, the public and how the public has accepted this now as not an intrusion into their privacy but something they are looking forward to and i think the first thing with cbi net -- the very first big bust that we have as a

result of these cameras will dissipate any public hesitation about it and how -- what an important critical tool it is and element for border security going forward. i know i should make a question but i want to make the committee what is happening here and speak to this. i was noticing this -- that the chairman put up here. actually, as we look at this, one of the other things that's happening, mr. chairman, members of the committee, as well, in our area is something called an operation integration center along the northern border. because we have, although in our case we have all the water and everything shown on here, all of these various cameras and various types of things -- all of this data, you know, you have to collect the data, right? collect all the tea, analyze the data and get it back out into the hands of the border patrol agents, the brave men and women who are tasked with protecting our border and cbp is putting an

operation center which will be a pilot program for the northern border of analyzing all of this data. you to move from the need to know to the information amongst all the agencies. >> i would like to acknowledge your continued efforts to talk about the northern border. i know from a political standpoint and what americans worry about, they are always talking about the southern borders. the realities is we have three real borders. we have the southern border, we have the northern border which is quite open as we all so know

and the resources and all don't seem to get there. and we also have the maritime border and we're very worried about the caribbean situation, drugs coming in and people smuggling, et cetera, which also doesn't get as big of play and we are hoping this year or early next year both the caribbean region as well as the northern border. i was just talking to our ranking member and we will try at some point, i hope, to make a trip up to the northern border. we did it a few years ago when we went -- to the niagara/buffalo area but it's definitely overdue. the stronger we become on one side, then people go to the place where we're not paying as much attention or it is weaker so we definitely have it on our list and you thank you for that. >> thank you very much. our next person will be mr. pasquale of new jersey for

five minutes. >> thank you, madam chair. madam chair, the fact is that our inability to find a border security solution that actually works makes it impossible for the congress to enact real comprehension immigration reform. that's the bottom line. and with all due respect, and i thank them for their to chief aguilar, mr. borkowski, and mr. stana and to many respects, our friend from boeing here, see, i don't think the technology is the problem. it's our inability to articulate a coherent policy for practicing and protecting our borders. that's the problem.

i don't think they're the problem. we're the problem. and the administration is the problem. before and now. so you could put more personnel -- i mean, we just discovered we had a northern border in the last two years. we thought that it disappeared. dematerialized. but you can have more personnel, more walls and fences and more electronics, and we're good at that stuff, you know, we like to work with that. but we're not good at accomplishing what we're set out to do and that is to have an overall plan and have a clear budget. this budget is certainly not clear to me. maybe it's clear to all of you. so chief aguilar and mr. borkowski, i have a simple question on the actual results we've seen from the secure border initiative.

since fiscal year 2005, sbi's funding has amounted to over $3.7 billion. this year, the department of homeland security has requested $779 million in sbi funding for the fiscal year 2010. my question is, what are the actual results on the border before and after we had put all this funding into technology on the border? and my second question, and i'll have a third one, but my second question to be clear, how many more illegal crossings have we stopped in the years since we started sbi as compared to the years before? how many more drug seizures have we made? how many weapons have we stopped from going across the border? because, remember, madam chair, we weren't even concerned all the weapons that were going from the united states down into mexico which are now killing our guys and gals. our guys and gals.

we certainly don't want to stop industry, do we? so we want those weapons to continue to go over. from all kinds of sources. let's start with those two questions. >> let them begin with the tasks that you asked for. the peak year for activity levels was fiscal year 2000, the year of 9/11. 1.6 million apprehensions of illegal to entry and half a million pounds of narcotics. as we speak, we're going to end up this year with about 5.5 -- or 550,000 apprehensions. and by the way, the narcotics apprehensions is about 2.5 million pounds, a tremendous increase, one of the reasons for that ability to increase the narcotics apprehensions because our ability to focus on other threats such as narcotics when we mitigate the illegal alien

incursions, we are able to focus our efforts on other threats. one of the reasons we've been able to do that is because of some of these expenditures of funds. within these $3.7 billion that you spoke about, we got capability to us such as the mss that was spoken to earlier, mobile surveillance system, which give us a stand-alone capability, it's a system stand-alone capability. it's not networked but it give us a tremendous amount of enhancement to our agents. >> what about the interdiction of weapons going from the united states to mexico? >> we have actually increased our efforts as a department, cpb, border -- >> how many weapons have you confiscated? >> i don't know -- >> do you have any idea. >> i wouldn't guess at this point. i'll get you the numbers. >> is that a priority? >> it is a dhs and cbp printer in the the border patrol assists. the congress has given the

border patrol 44 specific decisions for next year in order for us to continue assisting. but the main focus on southbound weapons is by our counterparts at the parts of entry checking traffic southbound. >> would you get back to me and let the committee know how many weapons have been confiscated >> absolutely. >> that are going from the united states into mexico? >> yes, sir. i would also take the opportunity, congressman, to address something that i think is important because of the level of support that congress has given to cbp, border patrol and dhs but specifically cbp. madam chair, unfortunately, i think we may have provided you with some wrong stats. the number of border patrol and i'm very pleased to put this forth as of the 29th of august was actually 20,000 border patrol agents. 20,000 border patrol agent. we have grown tremendously. that alone with the capability being given to us right now by project 28, it evolution, it's

morphing, its development and continued enhancements is helping us tremendously. we still have a lot further to go and we are working very hard because of the recognition that we do need to secure this border as america's -- >> can we have a second round. >> we'll see. thank you to the gentleman from new jersey. when i began this hearing i spoke about metrics and trying to understand whether putting up a physical fence or putting up a virtual fence is really going to allow us to, if you will, take scarce resources and deploy them and use them better so that, in fact, we can bring down the apprehension. bring down the number of people coming across illegally, get the number of drugs that we need to -- and mr. pascrell, i completely share your view that until we fix the immigration

issue, we will continue to have excess people, people trying to get into this country that really clutters up what we're really trying to do, which is to get really bad guys, get the drug dealers, get people who would harm this country. so, unfortunately, this is just one piece of that. this is the, you know, the piece of security. it's fair to say that the people in the united states don't believe that we have been doing a good job of securing our borders. and that is why this sbi net -- that is why the resources that we are giving to chief aguilar and others, that is why the physical fence and places where it does work is so important for this cause. we need to have a level of confidence in the american public that, in fact, we can keep -- we can be vigilant and we can keep people out and we can also catch the bad guys so i

appreciate you bringing up the issue of how important the reform of immigration is. i would like to recognize a member to we gave unanimous consent to sit on the committee today and who sits on the full committee and who is the chair of our oversight committee and he and i have chaired many hearings together in particular looking at the issues of border security and that would be mr. carney. thank you very much for waiting for to ask your questions. >> thank you for the opportunity to attend. i have several questions probably more than 5 minutes' worth but we'll not -- this is not the last time we'll gather, i'm sure, on the subject. chief aguilar, you mentioned earlier in your comments that you have sort of a three-legged stool that -- and it's all

interdependent. you know, i think one of the legs -- the technology leg is a fairly wobbly leg. how are you compensating for that? >> we are commenting for that wobbly leg by continuing to develop our capabilities within the technology realm. going from stand-alone technology, for example, to an integrated system or a network of systems for technology is where we need to get to. in addition to that -- >> i know we need to get to. but what are you doing now? >> well, as i said that is part of the actual development that we're going through that mr. borkowski is doing on our behalf. our responsibility as agents is to identify and articulate the requirements that we have. his responsibility is to search out a means by which to fill that gap, that void that we have articulated as a need. we have technology, we have stand-alone technology. we are putting pieces together in a rudimentary fashion but what we're working towards is

that integrated network system that is what we're requiring. so it's a work in progress, basically. >> putting pieces together in a rudimentary fashion, okay, okay. mr. borkowski, i have to talk about a comment you made that wasn't lost on me that p-28 was not advertised. i don't know anybody in this -- on this committee who thought it was a prototype when they agreed to it but now it's being sold as a prototype. if this is somehow a slight of hand and it rankles me now that it's sold as a prototype. in any event, you said something that was interesting that you purchased several printers over the course of your time and sometimes, you know, they work, half of the time they work and half the time they don't. do you consider to buy those

printer products that don't work as advertised? >> you know, it's interesting 'cause we had this discussion at the department and when i had this with senior leader at the department they said well, that's why you buy a mac. but the issue that you have and the question that we always have is, if you go to -- as an individual when you go go buy a mac is three times a pc and i'm going to make a conscious decision do i want to pay the one-third and pay the pain of always cramming of the printer and that's exactly the same we're in. and typically in the government we go with the one-third cost. i'm not saying that was necessarily a bad decision. you know, you could make that argument that way but that's essentially what happened to us. >> mr. peters, i think you're probably -- maybe in a better position than your two predecessors. we asked the question a year and a half ago, maybe two years ago

now of one of your predecessors on what happened. and he said well, we didn't have the a-team in the contract. that was their answer, we didn't have the a-team on there. i don't know how far down the alphabet they were. but i want to believe that you are the a-team and that you're going to do this well. we want to be able to believe you, but you have to understand in the context of what has happened in the past, it is tough for this committee and certainly my subcommittee to believe your words until we see results and results are going to be absolutely essential. and, you know, the trials are coming up here in the next couple of months. we're going to be paying very close attention, in fact, it wouldn't surprise me if we get a request from this committee and my subcommittee to observe them, to be, you know, on the ground when they're going on 'cause we're not paying that close attention. mr. stana, the last question is

for you. it's a yes or no answer for you i know it's hard in government. but has the american taxpayer so far gotten what they paid for? >> no. >> thank you. no further questions. >> and i thank the gentleman from pennsylvania. pennsylvania. okay. i want to go back to the original -- one of the original things i said, metrics. one of the discussions, chief aguilar, you and i have had over time -- we've now given you 20,000 positions. you've done a great job in finding people, trying to train them, bringing them along and building the culture that is really about getting the bad guys but, you know, most of the people who cross the border really have a reason to be

crossing and making sure that people feel confident about that. because we had this discussion, if we get sbi net working and we put the physical fence in places as we have, is that going to create more work in a sense for your work force where you'll need more people or is that going to make it a necessity not to have the 20,000 agents that you currently have? because the last time we discussed this i believe you said something to the effect, i don't really know if my work force decline or whether we'll just be catching so many more people that i'm actually going to need more people to get them, more people to detain them, more people to put them through the process. so what's the -- what do you think now and what's the metric? how are we going to judge whether we're just making so

much busy work in a sense for us and really not using the scarce resources of the american people to still go after the bad guys, the terrorists, the person who brings in the chemical weapons which is really i think when we look at homeland security our biggest desire is to really get the bad guys before something happens on our soil. >> yes, ma'am. and we have spoken about this before and thank you for asking the question. because i think it's important that at every opportunity we speak to this. first of all, i think it's important that we recognize that the efforts that are ongoing are to secure our borders. each one of our borders you articulated three of them and i agree there are three versions of our borders requires a different enforcement model. the purpose of the application of the enforcement model is to basically on the southern border, for example, is to mitigate the high level across border illegal traffic that is occurring because of the

potential for exploitation of that high traffic by not only narcotics traffickers, illegal aliens but especially the terrorists that are still looking to come into this country. so applying the right enforcement model comprised of the right type of technology, the right level of technology, the right personnel -- numbers of personnel and the tactical infrastructure is critical. the metrics that correlate to that is how do we measure that mitigation of across-border activity. there are third-party indicators. what happens to activity that is associated with the high level of cross-border activity? we see in san diego no objection, we used to see a lot of stolen vehicles, people getting run over on the major highways. we used to see a lot of rapes, murders on the immediate borders. we used to see stash houses, we used to see staging on the mexican side and places having

to cater to this illegal traffic that was occurring. we measure all of those to gauge what has happening overall from a global perspective as it relates to a specific area of the border. so we take all of those things into account. some of the things we take into account, assaults against our officers. we know for a fact when we're going into an area of operation to gain control, assaults against our officers are going to escalate. they're going to go up. we fully expect that. we train, organize and equip our officers in order to be responsive to that. so we take a look at all of these metrics looking at the outcome of our border. on the northern border we have an absolute need to increase our situational awareness of just what is happening as ms. miller said. at this point, frankly, there are some points on the northern border where we just don't know what we don't know because we're not out there to the degree that we need to be. so what are the metrics. it's intelligence, working with

rcmp and our ice partners, fbi, dea and others interlocking all the intelligence that we have. getting greater fidelity on that northern border so those are the metrics that we're looking at. now, as we move forward, one of the complexities that we're faced with is we're dealing with the obvious. human criminal aspect. for every action that we take, they're going to react. whether it's because they're wanting to come into this country to make a better life or to destroy our way of life. or whether they're looking to come into this country to bring in their narcotics loads. there are certain draws into this country so that human aspect we have to take into account. we actually plan for that displacement. it is going to move until we are at a point where we have secured our entire border. in california, two days ago, we

had two loads of aliens that went out 20 miles into the pacific and then went north 39 miles and then landed. they can't get past us along the land borders in san diego. that's actually a measure of success. the coast guard is involved with us right now so that we take that avenue away from them also. so those are the things we're tracking and those are the metrics and that's the way we preplan where it is that we're going. >> thank you, chief. do you have a couple more questions there. >> yes. i wanted to make a couple of comments and a fundamental question. mr. pascrell and others have talked more about the north border. as somebody who worked narcotics issues for many years as well as that involved in terrorism and i did a border report after a series of hearings prior to 9/11

and have worked with mr. aguilar for many years, let them say that i have visited every state on the north border, have held joint hearings with the canadians on the north border when i was chair of the government oversight even before the creation of this committee. it's contraband. it could be chemical weapons, nuclear and it's a constant challenge. the people can be coming for work or terrorism. they can be coming for a variety of reasons. and the problem if anyone can get through, which is almost impossible to stop, they could be the one carrying the nuclear weapon. and the challenge is how do you get these zero tolerance when you have these huge borders and it obviously requires intel which is critical. and then it requires every strategy. part of the job of mr. stana in your whole agency is to be a pain in the neck and to try to

hold the agencies accountable. that you obviously don't have all the information but it provides an independent check and we need to hear that constantly. i don't know whether or not this program ultimately will be justified in cost. quite frankly, i was one of the early skeptics because i felt this was an excuse to avoid building a huge fence and it was too massive of a approach rather than a building block approach and when you have this much money in 28 miles it wasn't going to be workable. i don't agree with the statement that some of us didn't raise that question in the very beginning. we had questions as to what the deal with this. the prototype was an ideal structure that in the military world would have been incredibly expensive. in this world we didn't have the dollars to do it.

you can see certain advantages with the uavs going up. you can see where the gun is. our agents that have been killed in california, had they had technology, to tell them this were three guys there with a gun he wouldn't have been assassinated. if you can see where in oregon pike where a park ranger was killed, if we had information to be able to get down to them there they would have been able to see his gun and drugs were. that's incredibly expensive and the question is what can we do that's reasonable, that's workable on both borders to add technology to the people and to the other methods that we're using? because they're always going to change. and chief aguilar definitely made a terrific point and this is what we deal with in narcotics all the time. do you push them out, you increase their expense, you reduce the numbers, you have more chances that they'll trip up, more chances that you'll see them. and the whole goals here we'll never make it 100%. to the degree we make it harder,

the degree you're likely we're going to catch them and we're much more aware than on 9/11. now, my fundamental question is, that there were some signs in suggesting that you were going to look at this in january and see whether it would proceed and at some point if we're going to do the whole border, i believe it if we're doing the north, too, congress still hasn't seen a -- what the range of the cost of this project is, the only way we can do that is take, okay, here's what we did for 28 miles and we're redoing that for tucson 1, are we going to extrapolate that and what percent do you extrapolate and you have these huge figures that scare congress off. do you see yourself because ultimately we need some sort of, quote, effective control of the border. do you see yourself evolving towards another strategy, a

faster strategy, more of a building block strategy? what do you see, mr. borkowski? >> we see ourselves as going to a building block strategy so what we have at this point is we have a plan that if it's appropriate, that talks about covering the whole border, and we need to be prepared to execute that plan, but like you, we don't have all the data we need to convince ourselves that's the right plan. it may make more sense to be a little more selective where we put this. so, for example, one of these areas of responsibilities covers about 20 to 40 miles of border. that's roughly the range and it costs us loosely speaking about $50 million to cover that. you know, to put it in. now, there's the operations cost. so you can start to see that as we figure out what the effectiveness of this is, compared to lower costs and other types of technology which is the reason why i'm having these three to six hours of meetings every week to collect those other technologies, we will gain some experience here and then the department is going to be in a position to say, okay, we're prepared -- we're

prepared to cover the whole border but before we do that, let's take some of this experience and say is that really the most cost-effective way to mix infrastructure, technology and personnel in all parts of the border? so our strategy has been be prepared to do it. get to the point where you're prepared to do it as quickly as told but also make sure as you do it, you have incremental steps where you can check and we can have this discussion what is the right amount for each part of the border. >> it's important for those who are watching this hearing or has a record of this hearing that while we're focused on this sector of arizona which continues to have plus douglas the most intense pressure is that we don't know what we don't know the fact is your agency is not just focusing on this area. what we talked beforehand what's being done at big ben and amistad, you're working the whole border. it's just this is the most intense area because it's the

most intense area of conflict in numbers. i yield back. >> and i might remind my ranking member that the border is much more than just the land border also. there's a reason why we're called the border of maritime and global counterterrorism subcommittee. it engages quite a bit. mr. pascrell, do you have a question or two? >> thank you. i want to ask mr. stana about standards. i know that homeland security keeps on changing the goal. it makes it more difficult for them to do and the other folks to do what they have to do. it's my understanding that various -- at various times it has become apparent that the sbi net would not be able to meet established performance criteria. that the department has simply lowered its standards rather than fixing the problems with the system. at one point, there were nine

such criteria. we talked about this a few years ago. now there's three. at one point, the system was supposed to identify and classify 85% of the entries. now it's only 70%. so mr. stana, what can you tell us about the performance criteria for both project 28 and tucson 1. how do they compare? and are we grading on a curve? >> with respect to project 28, the criteria there was 95% plus or minus 5%. so that was much higher. for block 1, i believe the objective is 85% but the threshold for acceptability is 70%. i would hope that over time, that bar would go up a little bit. that seems a little bit low. i think, you know, 2010 is going to be a crucial year with these operational tests.

and if the technology turns out to work and, you know, with a few tweaks or right out of the gate, that's great. we hope it all works. and if it doesn't, perhaps the department needs for think about a plan b because this is the second prototype, in essence, after project 28, and if this doesn't work with appropriate metrics, then what? >> well, let them ask you this question. you've looked at this or you've overseen this situation for quite some time now. you've witnessed the changes i've talked about. the goals changing. what's the main problem here. since we're not satisfied, it's quite obvious, both sides of the aisle, as to what's happening down there. and then it's not any way a reflection of the hard work that

the chief does and the other folks have done? but we're not -- we're not getting it done. and while that's not getting done, we are not responding to the major problem of immigration. in fact, the economy of america has more to do with the immigration than any of our brilliant ideas here. about how we're going to make sure we know who comes into this country from wherever they're coming, north, south or from planets. it doesn't matter. what's your analysis? >> well, i would -- i would put it this way. this is an extremely difficult thing to do. we can talk about hooking up printers and i think -- i understand he's trying to use a metaphor here. but it almost oversimplifies the task at hand. maybe we're still having an expectation gap here. is the technology really ready to do what we have contracted for it to do.

the second thing, in setting contracts they talk about the whole northern and southern borders in three years and it seems like every time we have one of these hearings everything is going to be fixed and we're disappointed. maybe it's just time to really think about whether this is the way to go. our cameras really of sufficient rigor and technology to get the 10-mile range that maybe the border patrol might like. are the radar really able to deal with the winds that you have to expect down in arizona? or is there another plan? i know the border patrol likes msss as a stop gap for small areas and they have their problems too. but in thinking about this and it's a good question, maybe the grand plan is something that isn't achievable right now given the current state of technology. ..

>> if we are not clear about the policy in the first place. and i would suggest that we are not. i will stand corrected if i'm wrong. and i have seen too many valleys in this thing and not enough peaks. and i am very concerned. we have been here together, whether before when we're a

selectivity, before we were even a committee. i have been here trying to do it to the best of my ability to be something hopefully positive. i think we're headed in the wrong direction. that is my opinion. i'm not going to ask you whether you agree or disagree. >> i am not a policymaker. i just try to provide information and analysis. >> the gentleman's time has expired anyway. >> go ahead. >> the republican administration overpromised stability technology to do this. and we would appreciate that the new administration doesn't overstated, coming with realistic goals, realistic budget and in trying to go from there. >> i think over all what you're hearing from the committee is that we are very concerned about securing the border. and i think we have worked in a very bipartisan manner to attempt to do that, and keep the politics out of this.

although, as mr. sadr and i were just discussing, they're all always politics. i have one more question for you because as the chairwoman of the subcommittee in particular, again, one that is entitled boarder, merry time, and global counterterrorism, as you probably hear and i hear this over and over we talk to membership some of us have made some trips to some of the areas or merit areas to be secured. we're talking about the columbia drug issue, you spoke about how people are avoiding the land out and they're moving around and coming through the ocean. we have a real open area as far as the caribbean arena. and so there's been a lot of bantering around, especially some of my members, about the fact that they go and the travel and they take a look at these things that i want to ask both of you, do you think it's been worthwhile for the members to come out and actually take a

look, for example, to go over and talked to the mexican officials about border violence that is happening? do you think we should be going to the northern border? does what is happening in talking to the coast guard and what is going on, for example, in the pacific or the caribbean, do you think that's worthwhile or do you think we should take mr. santos and your word for what is happening after? >> you should not take our word for it. i would absolutely recommend that you continue going out to the field. it is a very complex matter that we are handling. it is a requirement of a comprehensive approach. and the enforcement model that i spoke to earlier is very specific to each one of those borders, and even within those borders, within specific areas it needs to be literally designed for the area we are focusing on. i would absolutely love to have you and the rest of the committeeman was out there.

i think it is critical that you get a look at it first and. absolutely. >> i would like you to take my words for things, but i think it's absolutely essential. i get better through four times a year, and the border patrol is good enough to take us around and up in a helicopter. there is no substitute for seeing it firsthand, seeing what works, what the challenges are. it sounds awfully simplest example i to say if you put this camera and radar together it's difficult. the terrain is difficult or the challenges are there, and i think getting down there is one way to gather a firsthand appreciation for the difficulty of this task. >> i appreciate your comments, and i just want to remind all of you, mr. peters you didn't have too many questions. representing bowing there. i just want to let you know, this is not about a witch hunt. this is trying to figure out how we make a system work. because the american people are not only, are we tasked with spending the money to do so, but

we have such broad issues out there that affects only people on a day-to-day basis that if we can't get this under control, if we can't work together and we can't figure it out, you know, it's very difficult to work on some of these and have the confidence to work on some of these other issues that are out there. so i want to thank all of you for being forced to pay for your valuable testimony. i want to thank the members for having attended so well. and the members of the subcommittee may have some additional questions for you. we will put them in writing. we hope you will get them out to us as quickly as possible. and this subcommittee stands adjourned. [inaudible conversations]

these other issues that are ou [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> we are going to take you live now to a discussion on financial markets with fdic chairman sheila bair. posted by georgetown university's school of business.

we want to opening remarks on the dean of the business school and from kathy kinney, former president of the securities and exchange firm, nyse your next. should get underway momentarily. is the first of several events were coming u covering. also on c-span this afternoon at 3:30 the director of the national economic council larry summers, the keynote speaker live on c-span later this afternoon.

[inaudible conversations] [inaudible conversations] >> the mcdonough school of

business and the future of global finance conference getting under way this morning. the first of several events we will cover this morning. and a couple of key financial regulators speaking today. first this morning it will be sheila bair, the head of the fdic, the chairman of the fbi speaking to the group voluntarily. in the afternoon, mary schapiro out who is the chairman of the securities and exchange commission. "the wall street journal" reported this morning the sec proposed banning flash quarters which give certain large traders staked peaks at market activity, responding to concerns that some investors are getting an unfair advantage. the flash proposal is the first of several rules the agency is going to change the structure of stockmarkets. from this morning's wall street journal again the securities and exchange commission chairman mary schapiro speaking this afternoon at 1 p.m. eastern. that will be over on c-span, as well the 3:30 discussion with larry summers, who heads the national economic council.

[inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> and just a couple of minutes sheila bair the head of the federal deposit insurance corporation will be speaking to the group here at, the future of the global finance conference at georgetown university. also live on c-span2 secretary of state hillary clinton. she will be speaking this morning at the brookings institution getting a preview of the upcoming u.s. agenda for the united nations general assembly, live this morning here on c-span2 at 10:30 eastern.

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> this is georgetown university. the mcdonough school of business in washington, d.c.. at a conference they're having on the future of global finance.

the first of three events we are coming here today live this morning. the chairman of the fdic, sheila bair, will speak to the group. later in the days ahead of the securities and exchange commission mary schapiro will address the group at 1 p.m. eastern. that will be live on c-span. also on c-span this afternoon at 3:30, larry summers is the keynote speaker. both of those events began live over on c-span. [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> a couple of key financial regulators speaking to the group here at georgetown university and the future of global finance

conference. this morning, they will hear from fdic chairman sheila bair. in the afternoon, mary schapiro, who heads the securities and exchange commission will speak. that is at 1 p.m. eastern. that will be live on c-span. on regulation is born, "the wall street journal" is reporting that policies that set the pay for tens of thousands of bank employees nationwide would require approval from the federal reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions. the feds plan reported by "the wall street journal" would for the first time in jack to government regulations deep into compensation decisions traditionally reserved for the bank's corporate boards and executives. we will hear from two regulators today, sheila bair and from mary schapiro. and they will wrap up the day hearing from larry summers who heads the national economic council. that speech live this afternoon at 3:30 eastern over on c-span.

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> this will be a minute or two before we get the program underway with sheila bair who heads the fdic. we will have a poor eli. for so a look at what's ahead this weekend on c-span networks are in 1971 as a new york times reporter.

>> about the role, traditions and history of the court. >> he said he wouldn't come in here. >> the reason justice brandeis said he wouldn't come was the building was so elaborate and would go to their heads or maybe he was right. but it has come over time a symbol of the court system of the third branch of government and the need for stability, rule of law, which is what america stands for. >> supreme court week starting october 4 on c-span. c-span offers teachers free teaching resources on our

judicial system. go to c-span classroom.org. >> georgetown university school of business hosting a conference on the future of global finance this morning. they are going to hear from fdic chairman sheila bair. should get started momentarily. any afternoon, a couple of other events including mary schapiro, who is chair of the securities and exchange commission. she will speak to the group at 1 p.m. eastern. that will be live on c-span. also live on c-span this afternoon at 3:30 at the finance conference, larry summers, the director of the national economic council. [inaudible conversations] >> good morning. i'm sure people will be drifting and, but for a righty of reasons i think we better start as close to schedule as we can. i'm georgia daily and it is my privilege to serve as dean of the mcdonough school of

business at georgetown. on behalf of our staff and students and faculty, i would like to welcome you to our schools new-home, the building named an honorary of the late prime minister of lebanon and philanthropist. this is the first major conference to be held in this facility. this facility is going to permit our school to do a lot of things that were previously unable to achieve. and one of these is to provide a respected nonpartisan platform for important discussions of public policy issues. particularly, those that have a substantial influence on global business and finance. we are especially pleased that we have been joined in this endeavor by our friends and partners of financial times. we are also pleased that is, our inaugural program, features touch a stellar cast of regulars, practitioners, and academic experts discussing the

future of financial institutions and markets. and in particular the regulation and governance. in the near future, we will host a number of other conferences in this area. the first of which will be a roast retrospective on the troubled asset relief program led by macdonnell school professor and other major participants in the program creation. so please stay tuned and please stay involved. i think you'll find it interesting. now i would like to introduce the chief architect of today's program, professor agarwal from the mcdonough school of business professor, to describe today's program. thank you all for being here. [applause] >> thank you, dean daily. good morning, and welcome to the conference on the future of global finance, to celebrate the

inauguration of the mcdonough school of business' new home. this event has been made possible by the strong support of dean georgia daily. i also want to thank a number of my finance colleagues and colleague in the accounting area for their strong support and help in putting this together. this is the first anniversary of a historic month that shook up global finance your evened out it's hard to grasp everything that happened in a relatively short period of time. last year on september 7, fannie mae and freddie mac were taken over. september 15, lehman brothers filed for bankruptcy. september 16, reserve primary funds with more than $50 billion in assets broke the block, leading the treasury department to provide guarantee for money market funds.

september 16, the u.s. government stepped in to rescue aig. september 18, central banks around the world took new measures to address the squeeze in u.s. dollar funding with expanded faultlines. september 19, u.s. treasury comes up to the top proposal to remove troubled assets from bank balance sheets, which was rejected by congress and ashley and then passed by congress on october 3. during this period of time, the u.k. band shortselling of financial stocks. the united states securities and exchange commission also banned shortselling of financial stocks. the dow jones plunged. a number of people lost their jobs. there was a lot that happened just during the month of september last year. governments around the world have taken unprecedented measures. washington is not just a

political capital, but is also become very closely linked to the financial capitals of the world. or some would say, has become the global capital of finance. the events of the last 12 to 18 months have raised a number of questions from how did we get here, to how did we follow the fight of global financial structure for the future. georgetown university has always been at the forefront of addressing important public challenges, public policy challenges. today the macdonnell school is pleased to bring together influential policymakers. decision-makers from the private sector, and experts from academia, to discuss potential solutions for the many challenges that we face today. we have an outstanding set of keynote speakers, each of the three panels has very distinguished speakers who will be addressing important time

issues. i encourage you to stay until the end of the conference when larry summers remarks at 3:30. just to go over some logistics. please do turn off your cell phones. our keynote speakers will take a few questions at the end of their talk. i would appreciate if you would write a question for our keynote speakers on an index card that our student helpers will hand out. they are standing right here. and i will now request katherine mckinney to introduce chairman sheila bair. kathy is the former president and chief operating officer of the new york stock exchange euronext. she serves on several corporate boards. cathy holden on the right to grieve from georgetown university, is a member of the georgetown board of directors. please welcome catherine kinney.

[applause] >> good morning, dean really, professor. thank you so much for convening this very timely and important conference. i think everyone will benefit a great deal today from the dialogue. particularly as you all think about and consider the future framework of our global financial system. to kick off the program this morning, it is my honor to introduce sheila bair, chairman of the federal deposit insurance corporation. chairman bair was sworn in as the 19th chairman of the fdic on june 26, 2006. she has an extensive background in banking finance and a career that has taken her from capitol hill to academia to the highest levels of government. before joining the fdic in 2006, she was the dean's professor of financial regulatory policy at

the isenberg school of management at the university of massachusetts at amherst. sheila has been at the center of managing through the financial crisis of the last year, and her work continues on center stage as the fdic plays a very key role on the future of our national banking system. sheila is a thought leader on financial reform and has been recognized in numerous publications and forms. having worked with sheila for five years at the new york stock exchange, it is a privilege to introduce her this morning, and to publicly thank her for the role that she and her team has played in our financial system. and although she has done, not only for the financial system, but for our country. sheila, we look forward to your comments. [applause]

>> thank you, kathy picked that was a very kind introduction. we have known each other for many, many years, and it is so nice to see you. and thank you and dean daly and the professor for inviting me to speak this way. the famous robert frost once it is when you know the sort of activity for which he will neglect his studies. so the fact that all of you are here at 8:00 in the morning to hear talk of financial regulatory reform i think is a very promising sign. your new home for the domicile of business is really remarkable. i love the glass atrium as i was walking in. gives you a window in the world where business is getting more global everyday. and i understand it was intended to put his education on public symbolism there for all to see and i think that is a very good idea. transparency is an abiding value of our democracy. in the wake of the current financial crisis i'm also very big on, fan of transparency

particularly at business finance as well as government. the fact is if we had more tranthirty we could have avoided some of the mess we're in. particularly regarding the structured finance and derivatives market. with that in mind i want to talk this morning about how to create a more resilient transparent and better regulated financial system. one that combined stronger and more effective regulation with market discipline. ultimately our goal must be to end too big to fail. to do this, we need to fix weaknesses in our regulatory system and to work with our international partners to reform the resolution processes and other countries when large firms become nonviable. with the steps we can foster real market discipline and make international cooperation more successful. it's very clear that one of the causes of the economic crisis significant wregget were gaps within the financial system. differences in the regulation of capital, leverage and consumer protection, and the almost

complete lack of regulation of over-the-counter derivatives allows rampant arbitrage. reforms are urgently needed to close these gaps. at the same time keep in mind that most of the risk in the system did involve firms that were already subject to extensive financial regulation. one of the lessons of the past two years is that regulation alone is not enough to control him prudent risk-taking within our dynamic and complex financial system. we need robust and credible mechanisms to ensure that markopolos will actively monitor and keep a handle on risk-taking. in short, we need to enforce market discipline for systemically important institutions. in a properly functioning market economy, there will always be winners and losers. we don't have capitalism if we don't have losers. so when firms through their own mismanagement and excessive risk-taking are no longer viable, they ought to fail. preventing companies from failing ultimately distort market discipline, including the

incentive to monitor competing firms and to allocate resources to the most efficient ones. unfortunately, measures taken during the past year while necessary have only reinforced cid that some financial firms are too big to fail. today, now we have fewer players in critical areas of our markets. the market is even more concentrated and interconnected than before. unless we adopt needed reforms our system will be more not less fragile after this crisis. the two big fail doctrine creates a vicious cycle that needs to be broken. large firms can borrow more cheaply and on more favorable terms because the market assumes the government will not let them fail. equity investors also have relied on an implicit government guarantee with an unlimited upside, but a very limited downside. in effect, the largest firms socialize the risk and costs by not paying for equity and credit based on the true risk and while keeping enormous profits during

good times. this creates equally enormous risk for the system. big firms leverage their operations to make still greater profits. while investors and creditors become more complacent and more likely to extend credit in funds without fear of losses. for senior managers these incentives are even more skewed. paid in large part through stock options for senior managers have an even bigger economic stake in going for broke because they're upside is so much bigger than any possible loss. once again with too big to fail, the government takes the downside risk. this has got to stop. we need a credible method to close a large financial companies without inflicting collateral damage on the economy. i think it's time we took a chapter from teddy roosevelt trust busting age. we need to create distance for these firms to become so large and interconnected that their failure would threaten us all. far from being rewarded with the prospect of government bailout, systemic firm should be penalized with higher capital, assessment and exposure to a

tough mechanism if they become nonviable. to end too big to fail we need an orderly and highly credible mechanism that is akin to the process we used for fdic banks. when the fdic closes a bank, what typically happens is shareholders are wiped out, creditors take a haircut and management is replaced and the remaining assets of the failed institution are sold off. the prophet is harsh. it is painful but it works. it quickly puts assets back into the private sector and into the hands of better management, and it limits the cost of the takeover to the fdic's insurance fund did it also sends a strong message that investors and creditors face losses when an institution fails. so-called open bank assistance for large complex firms should be prohibited. this assistance puts the interest of shareholders and creditors before that of the public. if anything is to be learned from this crisis is that market discipline must be more than a philosophy for warding off need

regulation and the times. we heard that a lot. it must be enforced during difficult times. we have an effective process to close banks. but we do not have such a process to close large holding companies or other large firms like lehman brothers. we need an orderly process for winding down large important financial firms without posing cost to taxpayers. unlike what we have now, a new resolution regime would focus on maintaining a failed institution liquidity and key activities so it could be resolved without the panic with a year ago. losses would be borne by stockholders and bondholders of the holding company. senior managers would be replaced. make no mistake. i support the actions we took what the federal reserve board and the treasury department to stabilize the financial system. lacking an effective resolution process for these firms we did what we had to do. but going forward the banking system should not be used to prop up any individual firm, only to get systemwide support. our tempering the quiddity

program is a good example of systemwide support that prevented a deepening of the crisis. in addition firms that poses the risk should be subject to regulatory and economic incentives and that required them to hold larger capital and liquidity positions. restrictions on leverage and risk based on financial institutions and their would be disincentives that racist and it concerns. in addition, large financial holding companies should be subject to tougher prompt actions under u.s. law. they should be subject to holding company capital requirements that are no less stringent than those for insured banks. as for off-balance-sheet assets, which were a major headache in the current crisis, they should be counted as on balance sheet risks. without these changes will be forced to repeat the costly ad hoc responses over the past year. we are also in need of a regulatory framework that is proactive and identified issues to the broader financial system. the new structure featuring a strong oversight council would

monitor the financial system from insurance companies to banks. by looking broadly across all of the financial sectors, they will be held to adopt a macro prudential approach. the point of looking more broadly at the financial system is that reasonable business decisions by individual financial firms may in the aggregate post a stimac risk. this is a classic fallacy of composition problem that cannot be solved by making entries product safe. instead of rules issued by the council and enforced by the federal reserve will begin a four for all parts of registry system. in short and oversight council would see the big picture with a wide range of views making it more likely with flags the next problem before it causes significant damage. another huge gap that desperately needs funding is the lack of regulation of over-the-counter derivatives like a credit default swaps market the crippled aig. we support treasures proposal to

require standardized derivatives to change on exchanges and settle through central counterparty systems. this will reduce risk that a single market participant can trigger. however we must go further to make sure market participants have a strong incentive to move standardize product through capital, margin and other incentives. as i said at the beginning, transparency is absolutely critical. we must have more transparency in our capital markets, securitization to derivative, to give us a more efficient resilient market. this requires regulatory diligence and requires market mechanisms that support transparency. never again can we permit the growth of totally opec structures like citizens ctls that mask the underlying assets, gained the capital rules and arbitrage ratings and regulatory requirements. i support most of the financial accounting standards. exuding, standard board changes to bring more assets on balance sheets to limit the opportunities for hiding assets and special purposes and to require more balance.

these favorite transparency. some proposals however do not appear to advance the ball. in some cases making banking assets -- exhuming, marking assets to market prices doesn't make sense. when a bank is holding a deposit alone or a similar banking asset for the long-term, it shouldn't have them market to market eyes that may very wide overtime extended mark to market account all banking assets takes a good approach for market-based assets like securities but extend to areas where it doesn't accurately reflect the business of banking. we don't need to deepen the crisis by inaccurately reporting so-called market bags for loans and other banking assets. this introduces a level of procyclicality that can have dire consequences when the accounting is divorced from reality. during the time such an approach can inflated to buy you of bank assets and capital strengths. during prayers of market stress, losses could be exaggerated.

volatility and bank balance sheets could impair public confidence and trigger banks. moreover given the idiosyncratic nature of the credit characteristics of individual loans, trying to determine a market price for many of them would be more hard and cited any of utility to investors compared to cost accounting. in fact the apparent transparency may be illusory because fair value assets and liabilities without any clear market prices simply increases the valuation discretion on the part of management. i would note that in a recent letter to the president, the oversight board of the ias be recognizing the cost-based accounting is a program for certain financial instruments and that it is not proposing that loan book of banks be held at fair value. we have been highly supportive of many if not most of the accounting reforms, but on this matter i strongly caution and to carefully consider the full ramifications of requiring fair value treatment of bank deposit

loans held to maturity. all of these reforms have a violent international component because of our largest financial institutions are these operate on a global scale. they can operate through form branches, foreign subsidiary bank, trading operations, as many of our large banking operations. so it is vital that a stronger more durable role financial system. all of the reforms i discussed today are just as important to the united states as they are for the g-20 and other countries that make up our global system. let me focus on one major issue. i have long advocated for more and better quality capital to reduce fragility of major banks. a key part of this is the internationally recognized leverage ratio which provided a vital backstop to the u.s. capital framework during this crisis. u.s. banking entity was crisis with more capital than their foreign counterparts. ifi treasury secretary daggerboard his support for the stronger capital and an international leverage ratio. the u.s. has taken a prominent leadership role in pushing for

stronger international capital regime particular for the largest firms that up post the greatest. this is google. global firms need more and better quality capital. and the u.s. must work with its friends to achieve a safer financial system. another part of our sabre global system is a more effective way to close failing cross-border financial firms. today there are no international laws or agreement for managing a financial crisis or a failure of a major cross-border bank. if one of these large banks fails, a variety of different national laws would apply. this makes it very hard to predict what will happen but very likely a cooperation between different countries with the bank operates will break down. justice in our domestic system you must have an effective way to close failed cost ford the firms. countries must so the big financial groups can fail in an orderly fashion and not simply be bailed out. the fdic has been leading an international working group focused on these reforms.

the groups recommendations focus on creating national laws that can work together, avoid bailouts and prevent future crises. tools like bridge bank and greater commonality and national laws requiring large firms to prepare wine down plans and advanced courtney lee plan to reduce risk and increased systemic stability. the next step is to keep the focus on reforming national laws. while many recognize the current age for reform we must avoid complacency and forgetting the lessons of the crisis. the g-20 financial stability board will be key players in keeping these issues before our trading partners. again google is predictability. minimizing confusion and surprise for investors and consumers which give rise to the panic that causes the bank runs and liquidity crisis. so in my confident that we will recover a year after lehman bankrupted westgate, i actually am. it will be painful. it will take time but we are starting to recover already. i deeply believe in this country. i believe in our commitment. are entrepreneurship, our innovation, our tenacity and are

tough hard work ethic. we will work through this. that is what we're good at, solving problems. i think and hope there will be positive things that will come out of this. i hope all of you who go into finance will become advocates for change, advocates for customer service, transparency and long-term sustainable growth. your customers must believe they are getting a fair shake. you need to get the mortgages, credit cards they can understand, small loans at reasonable rates, treating your customers -- i hope wall street has learned some of these lessons. i hope financial institutions have learned that long-term sustainable profitability can only come from products and services that have real value for businesses and consumers. to be sure, need to be more

vigorous that there's a difference between free markets and free for all markets that the government needs to set and enforce the basic rules. we're also looking to you, our future business leaders come to help us right the ship and steer us into colmer waters. we are going to get out of this. with your help we will be much stronger in the years ahead. thank you very much. [applause] >> we have a few questions. congressman barney frank said this week that he don't want the fdic to change banks to replenish the deposit insurance fund. he would rather see you borrow from the treasure. what do you think about that? >> well, i think the political dynamic on this interest we are shifting from people not wanting us to go to tax risk. i deeply respect his views.

we are carefully considering all options, including from the treasure. i never say never. the board will be meeting at the end of this month and we will be putting out some things are are, and i believe before we make a final decision. we warned the industry already there may be another special assessment. that option is to allow borrowing from treasure and i should have there are other tools we have that are less known. we have the authority to do that. we can require prepayment of assessments which would increase our cash position. so i think there are a lot of alternatives to look at and carefully consider. and i think there is a philosophical question about the treasury credit line, whether that is therefore losses or whether it is therefore unexpected emergencies. i think this is something we need to think about carefully but obviously we don't want to stress the industry earnings to much at this time when they are still in the process of recovery. i would also say that this is really a debate for washington and bank. i think for depositors they don't need to worry about it at all.

the main point is we have tremendous resources in either direction could be fdic deposit insurance fund is fully backed by the banking industry and behind that the united states government. there are many options for resources. is just a matter of which we take at this point in time. >> the second question. what are the fdic's main concerns and allowing present equity firms to own banks? could a conflict of interest issue not addressed by creating a wall between the banking and other operations? >> well, that is a good question. i think private equity, we are not trying to discourage private equity. we need bidders for failed banks. we need new capital in the banking system, and they are a source for both. they do have higher risk to us than traditional strategic buyer. a healthy bank coming in, and then on a failed bank will have a regulatory track record, a supervisor track record that we can look at it it will have a balance sheet to back the operations of the failed bank

acquisitions. private equity on the other hand is nontraditional, new investors and banks. they don't have a track record that we can look at. they typically formational bank holding company and put capital into that. it is limited to the capital that is put in that holding to the. the rest of the balance sheet is not available. they do pose high risk, which is why we impose higher capital standards and stronger restrictions. we wanted to make sure as a three-year investment horizon that they were by the bank but the longer-term view of maintaining profitability. so i do think these are important safeguards to the deposit insurance fund. we don't want to see these banks that. we want to have a strong firewall and i think they are very strict prohibitions on any type of affiliate transactions between the bank and any other entities where the private equity firm may have it. stimac what is the status of

planning to buy problem loans that are still open with the banks? >> well, we just announced this week, we ran a legacy loan program which the president announced last spring. it is a collaborative effort with the treasury. we test drove the mechanism or the legacy loan programs with our receivership assets. we took a step by step. a lot of issues and questions. we want to make sure we're doing it in a way that is prudent and ultimately the taxpayers to back our deposit insurance fund. the mechanism was successful. we provided, we retain 50% ownership, sold off the other 50%, provided some leverage of financing for the acquisition of the entire full portfolio will be managed by the acquirer. to the pricing was good. about $0.70 on the dollar which was good for all they mortgages. we think that was a positive sign. we're looking at now with the next it will be. and how it would would make it

available for banks and what the criteria will be. we're doing that at a step at a time. i think for banks are using it, they should contact their examiners or the other bank regulators and we can take their interest into consideration. >> the question about how many additional bank failures would you expect as a result of the current crisis? >> i get that question a lot. we don't make productions. i think we're up to 92 and a. they're closing in at a good pace and that will continue this year and through next year, i believe. i think it's still going to be obviously there are banks out there so the failure rate even though it is on. the banking industry still has challenges. commercial real estate losses are starting to overtake mortgage related loans. as a sign of challenge for the banking industry. and a lot of this is about the economy now. we're working through early on

securities products that shouldn't have been, should have been made. there is still some of that, but more now is more traditional sources of economic stress, people losing their jobs, businesses losing income. that is harder to work there because all these economic conditions we can do something about loans that should have been made. so we will keep working through that. but that is about more to a as i can get. >> regular framework order and the question talks about the fact that they are more reactive to date in some ways. they are getting very effectively with the crisis. and in your speech you talked about and oversight committee. could you say a little bit more about that, and would you imagine it to be international or more on a domestic level initially? >> well, i think would be anything that could hurt our system, both international conditions or, you know, through

other jurisdictions we are starting to ease up capital requirements and we start seeing some arbitrage activity internationally. i do think there needs to be both that has ownership in systemic risk. we have multiple regulators in the system. i am very much opposed to putting one thing in every single agency. i think there's a lot of risk and danger in consolidated system, consolidating too much power in one place. but i think with the council you can bring a diversity of views to the table. the ftc and the cdc with her derivatives market and banking regulatory and the ftse with our tremendous exposure uninsured deposits and our guarantee programs. i think all of these views would be helpful to have, but the important thing is this council would have ownership. we wouldn't be able to say that is another agency. that was their jurisdiction. that wasn't mine. again, so i think there could be some more streamlined but i've

been having a council putting us all out and say you are accountable, you need to monitor and prevent systemic risk, i think would go a long way. to correcting some of the filling in some of the gaps and also make sure we would see this council having authority to raise standards. so if a particular agency doesn't have enough capital for the institutions that they regulate, hire enough capital standards, or margin requirements too generous or whatever the council would be able to step in and impose them higher standards. i think that is an important check against regulatory complacency, which is always a risk when things get good again. regulators get beat up a lot and goodness knows we have made a lot of mistakes. but i do think the dynamic is in good times, these unaffordable mortgages, there are people, in 2001 we need to do something about this. but we are fighting a tide of rampant profit making, not just by the people who were originated and bending these

mortgages. consumers were able to pull out these cassia revised. it is difficult, and i think having a council that is clearly accountable and politically independent, i think would help strengthen the ability and resolve with regulators to act, even in good times to constrain imprudent loans and risk-taking. >> thank you again for your and tireless energy. >> thank you. [applause] >> thank you so much. >> we will take a 10 minute break, and then start our next panel. thank you. [inaudible conversations]

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[inaudible conversations] [inaudible conversations] [inaudible conversations] >> there is more like courage i had at this global finance conference at georgetown university. with the securities and exchange commission chairman mary schapiro speaking at 1 p.m. eastern on our companion network, season. the white house economic adviser

larry summers at the conference at 3:30 eastern also on c-span to hear on c-span2 this morning secretary of state hillary clinton. that begins next thursday. her speech this morning at 10:30. live coverage on c-span2. later the mayo clinic and the ceo will speak in washington at 1 p.m. eastern. next a hearing on ending the enforcement of un resolutions on iraq. the so-called chapter seven mandate were put in place before the u.s. invasion of iraq. william delahunt of massachusetts chairs the house foreign affairs subcommittee on international organizations. this portion is one hour and a half and a half and we will show you as much as we can and to our live event at 10:30.